"F" Is for Fizzle: The Faltering School Privatization Movement

Entrepreneurs promised they could rescue public schools and turn a profit too. Reality intruded.

Only a few years ago, privatization was the shiniest comet in the firmament of public school reform. Chris Whittle, Pied Piper of Channel One, the highly profitable in-school commercial television program, was vowing to open 200 new for-profit schools by 1996 and at least 1,000 by the beginning of the next century, schools that would outperform public schools and redefine our whole framework of education. In 1993 initiatives for school vouchers were on the ballot in California and Colorado. That same year, a Minneapolis-based firm called Education Alternatives, Inc. (EAI) seemed to come from nowhere to land a $180 million five-year contract to run nine of Baltimore's public schools.

Two years later, in 1995, EAI signed a deal of even greater potential to manage the whole Hartford, Connecticut system, a district enrolling some 24,000 students in 32 schools and spending $171 million a year. After voucher-touting Republicans took over the House of Representatives (and thus the purse strings of the nearly bankrupt District of Columbia), the company also began negotiating to do the same thing for some—or perhaps all—of the hapless, and costly, Washington, D.C., schools. In both cases, the companies were betting on a combination of fresh paint and carpets, mildly innovative pedagogy, often with its own trademarked jargon, lots of computers, and the dead-certain conviction that they could save a bundle by managing things more efficiently than the bloated school bureaucracies.

For the teacher unions, which have been fighting it at every turn, privatization, often coupled with the shadow of private school vouchers, was the thing from hell. For liberal school reformers like Jonathan Kozol, it was a further wedge in the growing gap between schools for the rich and the poor, and another example of how the poor were being sold to the lowest bidder. And for a lot of people on Wall Street, what came to be known as EMOs (education management organizations) had nearly unlimited potential, not just to prove out the trendy free market theories in K-12 education running through conservative circles, but, as analogs to the burgeoning managed care health industry, promising big bucks for investors.

Two years ago, after EAI came to Baltimore, its shares were selling at 48 3/4 on the NASDAQ over-the-counter market. "We figure we can reduce operating and administrative spending by 25 percent," EAI's then-ebullient chairman John T. Golle told a credulous writer for Forbes magazine, "and put 20 percent back in the classroom. The other 5 percent will be our profit." And he would do it, as the Baltimore contract required, with regular union teachers. That was both a useful capsule of how free-marketeers viewed the K-12 schools and a sign of how fast they expected results.

But in the past year, the comet, like a great many previous all-purpose solutions in public education, began to fizzle, not yet burned out by any means, but a far dimmer and slower-moving body than it seemed in 1992-94. Only a few months after it had made its privatization deal, the Hartford school board, finding itself in sharp disagreement with EAI over the terms of its contract, scaled the company back from 32 to 6 schools and, after continued disputes, cancelled the deal altogether. Something similar occurred in Baltimore, where the school board, squeezed for funds, buffeted by pressure from its teachers union, and sharply divided about how much EAI was accomplishing that wasn't being accomplished elsewhere in the system, cancelled its EAI contract.

In neither place had EAI managed to show any clear academic improvement; in Hartford it hardly had the chance, and in Baltimore, the improvement of the last year of its operations barely seemed to offset the relative decline of the first. In addition it had, in the words of one union official, "played funny games" with federal compensatory education money; it had, according to its critics, placed learning-disabled students in regular classes without providing them much in extra services, and it appears to have spent more money per student than comparable schools.

For a time, trading in EAI shares was suspended; when it resumed, EAI was selling at 4 5/8. The company, Golle told his shareholders last December, was changing its focus. In the face of the Baltimore cancellation and the ongoing financial dispute in Hartford—the final cancellation of the contract yet to come—its future was no longer in urban schools but in an environment that was "less political and less volatile." Unfortunately, Golle said, "the people we view as our best users are now suburban." The meeting, said New York Times reporter George Judson, "was a sobering affair."

By then Whittle's Edison Project had undergone its own sobering moments and an even more radical metamorphosis. After the brash announcements that it could build and run those 1,000 innovative new schools, charge no more than what the average public school spent (roughly $5,500 per child per year), have 20 percent of all students on scholarship, and still earn a profit, the company slowly began to discover that things didn't quite pencil out.

In the meantime, the politics began to look dicier as well. In 1991-92, when Edison was just getting off the ground, Whittle had uncomfortably close ties to Lamar Alexander, George Bush's secretary of education, and high hopes that sooner or later, an unrestricted private school voucher would come either from Washington or in one or more of the states where voucher proposals were pending. (Alexander had bought four shares of Whittle Communications in 1988 for $10,000, then sold them back to Whittle four months later for $330,000.) But Bush was defeated for re-election, voters in Colorado and California soundly rejected voucher proposals, and Whittle Communications shriveled after a series of financial disasters, many of them self-inflicted.

As a consequence, Edison was recast on a far more modest scale. Instead of building its own schools, it would, like EAI, bid to manage existing public schools. Former Yale President Benno Schmidt, whom Whittle had hired away from New Haven in 1992, and whose appointment had given Edison cachet as an educationally responsible operation, was still there, as chief executive officer, and so was John Chubb, a Brookings Institution fellow and one of the country's strongest proponents of public school vouchers. But gone was Hamilton Jordan, who had been President Jimmy Carter's chief of staff and was one of Whittle's more notable hires—his years at Whittle, he told people privately, had been a waste of time—and Whittle himself had been relegated to a secondary role on the board of what was now a separate entity. As of January 1996, the Edison Project was running four schools—one each in Boston; Mount Clemens, Michigan; Wichita, Kansas; and Sherman, Texas—and preparing to run four more, two in Miami, one in Colorado Springs, and one in Springfield, Massachusetts, beginning in the fall of 1996.

None of that should suggest that "privatization"—meaning the operation of K-12 schools, or large parts thereof, by private entities with public school money—is dead and gone. While few people other than committed enthusiasts would agree with the statement by John McLaughlin, who publishes a newsletter called the Education Industry Report, that the EAI setback "is not an industry setback," privatization, in more modest form, is still around. Boston University, under a ten-year agreement signed in 1989, is running the entire school system in Chelsea, Massachusetts; and a Nashville company called Alternative Public Schools, Inc., is running a public elementary school in Wilkinsburg, Pennsylvania, a Pittsburgh suburb, which, like Chelsea, is largely a poor and minority community. There are in addition a number of companies, like Ombudsman Educational Services of Libertyville, Illinois, operating alternative schools or remedial after-school "educational clinics" for problem students who are on the verge of dropping out—or being booted out—of school; some of these companies are eyeing the regular K-12 market. And despite a massive union campaign to unseat them, the backers of privatization easily retained control in Wilkinsburg. (Alternative Public Schools, the Wilkinsburg contractor, lost a significant battle this winter, however, when an arbitrator ruled that it had to hire back the 14 teachers it had fired when it began to run Turner Elementary School.) In February, after the EAI deals in Hartford and Baltimore fell through, Lehman Brothers issued a report declaring again that "the education industry may replace health care in 1996 as the focus industry."

But as Joe Nathan, who heads the Center for Educational Change at the University of Minnesota, points out, the expectations and ambitions of the privateers have become more realistic and less ostentatious. One of the strange ironies about both EAI and Edison is that the educational philosophies and curricula advertised by these hard-headed, market-driven operators have a distinctly untraditional, if not altogether new-age, touchy-feely aroma. EAI's "morning meeting," complete with rousing songs about one's "potentiality," is designed, according to company literature, "to build self-esteem." Its trademarked curricular approach, named Tesseract after "a fifth-dimensional corridor" in the children's book A Wrinkle in Time, "focuses on each child to nurture his or her educational needs [to improve] confidence, self-esteem and academic performance." This is not exactly what the back-to-basics crowd is looking for.

Another irony is that, at least until EAI's announcement last November that it intends to refocus on the suburbs, both companies have concentrated on inner-city schools, which have more apparent need for improvement as well as richer mixtures of extra state and federal funds to do it with. The case for privatization is easier to make in educational disaster zones like Washington, D.C., or Hartford, which spend large sums per pupil yet have little to show in academic performance, than it is in an affluent suburb to which parents have moved because of the schools. Nor are the privateers likely to back away from their devotion to computers, in part because they make good classroom baby sitters that allow teachers to concentrate on smaller groups, and in part because computers are so fashionably (and in some cases, perhaps, so deceptively) modern.

Yet, as Nathan said, there are signs that EAI and Edison—and privatizers generally—have learned a great deal from their bruises. The first is to be more modest: In Hartford, EAI was so sure that it could save the system money that it agreed not to take any profits until it did so; no one will ever do that again. In addition, while Edison plans to expand individual operations, like its Boston Renaissance School, which now has only primary grades, into complete K-12 schools, it's not likely that anyone will soon try again to swallow a whole system. Equally important, the companies have probably learned not to fight the unions head-on as EAI did in Baltimore (where it kept most regular classroom teachers but replaced aides with student interns, who were being paid about half as much), but to negotiate with them, as Edison is doing in the districts that have union contracts. But probably the biggest lesson, still not fully acknowledged, was that neither company had any real idea of how complex the management of public education really is, how great the distance is between the shiny ideas of the curricular plan and what actually goes on in the classroom between a teacher and child, and how hard it is to show dramatic improvement.

Ultimately, the key to the future of privatization lies not so much in any corporate boardroom as in the public's perception of its schools and thus in the political arena. Probably the single biggest influence on the future of privatization will be the success of the charter school movement. Nineteen states now have charter school laws, bills are pending in another ten, and about 250 charter schools have been established. In some cases, groups of teachers and parents have taken over an existing school; in others—a majority, according to Frank Newman, executive director of the Education Commission of the States—independent nonprofit groups have created an entirely new school. Charter schools are free from many conventional state requirements, though often still bound by state laws governing collective bargaining with teachers. All are in theory accountable for meeting the terms and promises of their charter. The Boston Renaissance School operates under contract with a local nonprofit group that has a charter from the state, and it's likely that if privatization spreads, it will be primarily through the new schools that charters make possible.

The political support for charter schools, in turn, will depend on how well the schools do in any given state or community, how obstructive or friendly the bureaucracies and unions are perceived to be—and how well Republicans do in the November elections. It is hard to defend the status quo when districts continue to agree to union contracts in which seniority, not quality or productivity, is the preeminent consideration in teacher promotion and placement and when most teachers get no real incentive for success or effort. In Minnesota, Nathan said, 3 of the last 15 teachers-of-the-year were laid off because they lacked seniority when staffs had to be cut.

In theory, the privateers ought to be at a great competitive disadvantage. They have to make money for their investors; the public schools do not. But if Dole beats Clinton and the Gingrich Republicans retain their hold on the House; if Pennsylvania Governor Tom Ridge, rather than just coming close, succeeds on his next try to get a voucher bill through the state legislature; if California Governor Pete Wilson can get his proposed private school voucher program enacted—if these or other initiatives succeed, the forecasts of a burgeoning private school industry by Michael Moe, who follows (and boosts) the industry at the brokerage house of Lehman Brothers, may well be borne out. On November 7, the day after the cancellation of EAI's contract in Baltimore, the Washington, D.C., school board issued a call for proposals for management services for its notoriously costly schools. By then both Washington's fiscally strapped city council and the House of Representatives had endorsed a broad school reform plan drawn up under Representative Steve Gunderson, Newt Gingrich's point man for the District, which included charter schools and federal "scholarships" for District students to attend private schools. Only the threat of a filibuster blocked enactment of the plan in the Senate.

That's not to say every state that enacts a charter school law or creates a voucher plan is ripe for corporate takeovers. But where the perceived return for students seems small relative to the expenditures, the public schools, like corporations sitting on large underused assets, are increasingly vulnerable. It's also likely that where a growing share of available funds are put into special education or other non-mainstream enterprises, as is ever more frequently the case, the target becomes even fatter. Conversely, every profit-centered enterprise will be under pressure to reduce costly special services even to those who need them.

John McLaughlin speaks about the "growing consumer orientation in education," which, in different terms, is the shrinking regard for education as an integrating community enterprise. Both open doors to what would once have been nearly unthinkable. The school unions hate it, for reasons that should be obvious enough, but where they are perceived to be barriers to decent education or desirable reform, they will be treated as just another set of self-serving interest groups in the battle for control. The corporate operatives at EAI and Edison badly overestimated the waste and inefficiency of the average school district, not to mention its social and political complexities, and thus their capacity to draw savings and profits out of the fat. So far neither has shown any impressive numbers, either in student performance or in making profits. But the existence of the industry, both as a small but irritating reality and as a big-time threat, ought to do wonders in concentrating the minds of the establishment and those who purport to be its friends. For all their costly mistakes in the past five years, the privateers' ability to learn and react accordingly ought not be underestimated. It's not yet clear that the average public school system has an equal capacity for self-correction.

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About the Author

Peter Schrag, a longtime education writer and editor, is the co-author of When Europe Was a Prison Camp: Father and Son Memoirs, 1940-41 (Indiana University Press, 2015) and author of Paradise Lost: California's Experience, America's Future, and California: America's High-Stakes Experiment. He is a former editorial page editor of the Sacramento Bee.